By: Ted Dabrowski

Illinois has postponed a planned $1.2 billion short-term bond issue for tomorrow and says the deal is now day-to-day. The state plans another $1 billion the following week. 

The state wants the $1.2 billion to ease cash flow issues stemming from the state’s delay of its income tax filing deadline to July 15 from April 15. The additional $1 billion is to fund summer construction projects and for the state’s pension buyout program.

The postponement of the deal is likely due to the slew of recent bad news coming out of the state. All three major ratings agencies now rate Illinois just one notch from junk and all have negative outlooks. The state’s recent revenues have been severely impacted by the economic shutdown, as April’s year-on-year tax revenues are down by $2.6 billion. And the Illinois Senate Democratic request for a bailout, followed by Sen. Mitch McConnell’s bankruptcy comments in response, for sure didn’t help market perception of Illinois.

All that pushed up the state’s borrowing penalty to nearly 400 basis points over AAA-rated credits, even before the state came to market. By comparison, Reuters reports that New York state bonds are just 13 basis points over.

Now, Illinois may have willing lenders in the market, but the spreads may be far beyond what Illinois is willing to pay.

In contrast, other borrowers including California, Louisiana and Maryland tapped the credit markets in March, while other municipal entities like New York City, New York State Power Authority, San Francisco, Missouri University, and San Diego’s Public Facilities accessed the market as recently as last week.

If Illinois can’t access the financial markets, it may eventually attempt to tap the new Federal Reserve “Municipal Liquidity Facility.” The program is not up and running yet, and accessing the money in the Fed program may not be easy. That’s according to Fox Business News Correspondent Charles Gasparino here.

There are certain certifications Illinois must make to receive money from the Fed. First it must certify it could not successfully access the credit markets and second it must certify it is not insolvent. Here are the details from the Fed FAQ.

What legal opinions and certifications will be required?

Eligible Issuers will be required to deliver standard legal opinions for the issuance of debt, including, but not limited to, an opinion of nationally recognized note counsel as to the validity, enforceability, and binding nature of the notes. Each Eligible Issuer must also provide a written certification that it is unable to secure adequate credit accommodations from other banking institutions and that it is not insolvent. Further information on required legal opinions and certificates will be determined and publicly announced prior to commencement of the MLF.

For the purposes of participating in the MLF, what does it mean for an Eligible Issuer to certify that it is unable to secure adequate credit accommodations? 

The Federal Reserve must obtain evidence that participants in the MLF are unable to secure adequate credit accommodations from other banking institutions. In certifying whether the issuer is unable to secure adequate credit accommodations from other banking institutions, issuers may consider economic or market conditions in the market intended to be addressed by the MLF as compared to normal conditions, including the availability and price of credit. Lack of adequate credit does not mean that no credit is available. Lending may be available, but at prices or on conditions that are inconsistent with a normal, well-functioning market.

Federal Reserve Bank of New York, Manhattan, New York | FlickrThe implications of Illinois going to the Federal Reserve would be twofold. One, it would increase the state’s borrowing costs even further – the Fed will purportedly charge a punitive rate for access to the facility. 

But more importantly, it would send a signal to the market of Illinois’ further distress.

Read more about COVID-19 and Illinois’ finances:

62 Comments
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Poor Taxpayer
2 months ago

Nothing but a PONZI scheme.
Should be against the law.

Juicy Smollier
3 months ago

Get your popcorn ready!

Poor Taxpayer
3 months ago

Only a fool would buy Illinois bonds.
They are NO GOOD.

UnclePugsly
3 months ago

Remember when Rauner tried to get his modest proposal on limiting the automatic 3% pension increase, and had to take it to the IL supreme court and the business geniuses on the court denied that modest cost measure reasoning in so many words that the state has the authority to confiscate all private wealth of anyone unlucky to have residence in IL so the state should just keep raising taxes. That right there is a perfect example of the morass IL is.

Poor Taxpayer
3 months ago
Reply to  UnclePugsly

Leave if you do not like it is what I was told by a teacher on a HUGE PENSION.
I did and it was the best day of my life. I have never looked back.

Riverbender
3 months ago
Reply to  UnclePugsly

Despite my differences regarding Rauner with the publisher’s of this blog I will give Rauner credit for that action. However one can easily imagine that being these are Illinois Judges one can not expect them to decide much differently. The only hope of a decision against the pension increase would be if the matter could get into the Federal Courts and to a Judge not appointed by the Obama or Clinton Administrations
JMHO

The Truth Hurts
3 months ago
Reply to  Riverbender

You may not know this but you actually should be giving credit to Quinn. That was his plan with squeezy the python. The court decision was in 2015. Rauner was not involved. As far as justice shopping, I would be more concerned about conservative justices. Gorsuch for one.

“any legislative deviation from a contract’s obligations, ‘however minute, or apparently immaterial,’ violates the Constitution.”
Sveen v. Melin

debtsor
3 months ago

“In an 8-1 opinion authored by Justice Kagan, the Court reversed and remanded, holding that the retroactive application of Minnesota’s revocation-upon-divorce statute, which automatically nullifies an ex-spouse’s beneficiary designation on a life insurance policy or other will substitute, does not violate the contracts clause of the Constitution.” The Supreme Court held that the retroactive amendment did NOT violate the contracts clause. Sveen v. Melin So taking this a little further, IL’s supreme court said that the only class of people whose contacts cannot be changed is pensioners. It’s questionable if the pension dimishment amendment is even constitutional. Sure, Corrupt Ed… Read more »

Ben
3 months ago
Reply to  debtsor

You can go back and forth all day about this, the fact is, the virus killed the pensions in Illinois, once and for all. They will have to be cut sooner than later.

The game is over, and there are ZERO realistic ways to pay them now in full as is. They are completely finished. State bankruptcy allowance is a 100% given now. It will HAVE to be.

James
3 months ago
Reply to  Ben

Not necessarily; all the fed has to do is keep the new money printing day and night at its printing presses. The pensioners and all other aggreived parties get theirs but with Weimar Republic style inflation as the likely result. One problem solved while another one awaits the next President.

Ben
3 months ago
Reply to  James

As long as Trump is in control there will be no pension bailouts. Illinois can’t afford to wait much longer at all, not even a few years. So, if Trump is re-elected, then forget about a pension bailout completely.

The Truth Hurts
3 months ago
Reply to  Ben

Ben,
Plenty of revenue in Illinois for bondholders, vendors, and pensioners. Other services not so much.

Recall the bobble head!
3 months ago

Before or after the unpaid bills are satisfied?

The Truth Hurts
3 months ago
Reply to  debtsor

In Sveen v. Melin the court held that there the contract was not diminished. The court did not review any further after this step. They believed that the insurance company paid the money to the true desired recipient that the policy holder wanted (not the ex spouse) so the contract was not diminished. You may have a hard to time convincing any court that reducing pensions is not diminishing a contract.

The interesting thing about that case is the dissent from Gorsuch. He went back to the original intent of the constitution and not Blaisdell.

Ben
3 months ago

States have to have services, period. If you are saying the state will be allowed to function without services, then you are an idiot, as that won’t and can’t happen.

Ben
3 months ago
Reply to  Ben

Also, courts can’t defeat math – that is why there is bankruptcy and police powers. And no, not the police powers back in 2012 with the corrupt state court, I mean the federal level. These pensions are far worse off than then, and will continue to be until they totally collapse. One way or another these pensions are done, even if it is total insolvency and the bouncing of checks. Math will win. Services must happen. No one worth squat will live here soon enough with no fixes, (including my wife and I) and then the pensions collapse anyway.

debtsor
3 months ago
Reply to  Ben

You are correct Ben: The math will win, the pensions will collapse. The court will bend over backwards to short change debt holders to keep services going. The Truth Hurts is just being pedantic about this, making all these legal arguments that have the effect of paying pensioners and bond holders to the exclusion of every one else, including police and fire.

The Truth Hurts
3 months ago
Reply to  debtsor

Sure math always wins. We just don’t know who is on which side of the equation. Even in bankruptcy it would need to be decided if pensions are an unsecured debt or if they hold property rights.

Bruce Markell, a Northwestern University law professor and former bankruptcy court judge, says, “If I was to do a plan, I would probably treat pensions separately.”

Who knows what the judge would do. If history has shown us anything, pensioners seem to escape these proceedings with less of a haircut.

Taxes will be increasing. Math always wins.

debtsor
3 months ago

I think though, given the dire situation of IL, a drastic cut to pensions would be considered reasonable, and a federal court might bend over backwards to give rulings favorable to the taxpayer.

The Truth Hurts
3 months ago
Reply to  debtsor

The United States Supreme Court has made clear that the United States Constitution “bar[s] Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole [citations].” (Internal quotation marks omitted.) United States v. Winstar Corp., 518 U.S. 839, 883 (1996).

I’m not sure why the courts would bend over backwards to make pensioners bear the burden of the shortfall over all of the state taxpayers. If that helps you feel better then by all means you continue in your beliefs.

Ben
3 months ago

The Truth Hurts is a fool. This dope obviously thinks the impossible is possible. The pensions WILL get cut. It will happen. How much? Who knows, but they will get cut.

I will be in another state when they get cut if things get bad enough for me here, and I will be smiling ear to ear when they do get cut. The Truth Hurts gets a pension, and that pension WILL get cut. The truth hurts, doesn’t it?

The Truth Hurts
3 months ago
Reply to  Ben

Name calling. Truly a riveting argument Ben. I don’t get a public or private pension. I am pointing out what will happen. Taxes will go up until raising taxes no longer provides additional revenue to the state. California has a top marginal rate of 12.3%. Progressive taxes are coming or the flat tax will be raised to 7 or 8%. Retirement income will be taxed. Services will be taxed. Plenty more opportunities to increase taxes. I get that you want to get rid of a debt instead of raising taxes. I’m stating what I believe will happen. When Illinois raises… Read more »

debtsor
3 months ago

But the government is forcing the taxpayer to bear the burden of paying public pensions?

The Truth Hurts
3 months ago
Reply to  debtsor

“forcing the taxpayer to bear the burden”

Public employees are also taxpayers. The burden is shared by all. The only ones not paying are retirement withdrawals from 401k, SS payments, and pension payments. Those people will have to pay someday as well.

Ben
3 months ago

Pensions are way too big of a problem in Illinois to not be cut, and that is why they will be. You seem like someone who gets a pension to me. The pensions WILL be cut in bankruptcy in Illinois, period. Taxes cannot increase forever, period.

Admin
3 months ago

In bankruptcy, the unfunded liability is an unsecured debt and the funded portion is secured and protected. That is clear. Pensioners have tended to negotiate a better deal in cases so far, but there’s not much latitude because, on the face of Ch. 9, all unsecured debt is supposed to be treated equally. But in a bankruptcy for states, Congress could set up different priorities.

Illinois Entrepreneur
3 months ago

If the problem was simply “raise taxes” to make all the debt go away, this wouldn’t be that difficult. The reason that bankruptcy needs to be declared is because we are close to–if not beyond–the point where additional taxes will lead to potentially negative long term revenue trends. In other words, more taxes will lead to the downward spiral of people and businesses leaving. It’s already happening, because many believe that they will be further taxed. As a result, even if the tax levy remains the same, the existing population will feel a worse and worse burden, thus speeding up… Read more »

James
3 months ago

Hey, let’s give public employer pensioners another tax break that surely they’d want to use. Let’s offer them some percentage of the cost of entering a nursing home, the more elderly the higher the percentage. They’ll have trouble with that one, wanting to take advantage of the tax break while fearing the more likely chance of getting the coronavirus or some other such easily communicable disease because of being in a tight living space among other elders prone to it as well. Let the corona virus help solve IL’s funded pension problems.

Ben
3 months ago

So true. The pensions will get cut.

Poor Taxpayer
3 months ago
Reply to  Ben

Anyone collecting a Pension does NOT PAY STATE INCOME TAXES. They can destroy the state but can not help it when it is dying a slow ugly death caused by them.

Yoz
3 months ago

You’re reading too much into one sentence. Gorsuch was objecting to the fact that the retroactive law changed the beneficiary of the life insurance policy, essentially negating the contract’s existence with respect to the beneficiary. However, he did not argue that contractual remedies are precluded by the Contracts Clause. There are many ways that contractual remedies can alter the benefits a beneficiary can receive from a contract, but they generally cannot remove someone as a beneficiary. The problem for Illinois is not really the Contracts Clause, but rather that the Illinois Supreme Court has read the pension clause as an… Read more »

The Truth Hurts
3 months ago
Reply to  Yoz

I was not taking too much from one sentence. What about these comments from Gorsuch.

In a scathing dissent, Justice Gorsuch counters that “the law before us cannot survive an encounter with even the breeziest of Contracts Clause tests.

“After all, the Constitution does not speak of ‘substantial’ impairments—it bars ‘any’ impairment.”

“seems hard to square with the Constitution’s original public meaning.”

Gorsuch also cited an 1819 decision penned by Chief Justice John Marshall that held that the Contracts Clause was based on “a great principle that contracts should be inviolable.”

debtsor
3 months ago

Just think of the twisting and turning and the discovery of the ‘right to privacy’ the Warren court made up out of thin air to protect the slaughtering of an innocent child in the womb. And the twisting and turning when the court found that corporations are people with a right to free speech in Citizens’ United. What about the absolute lunacy of a legal argument when RINO Justice Roberts found that the Obamacare individual mandate was a ‘tax’ and therefore constitutional? I’m not a conspiracy theorist by any mean, but the deep state had black and white photos of… Read more »

James
3 months ago
Reply to  debtsor

“IsRoberts going to tell IL to go back and do it again, raise more taxes, because, in the past, over 50 years ago, some people who are mostly no longer alive, put some BS clause in the constitution to protect pensions?”

Yeah, that’s a winning argument. Go with it! Maybe you could even use it to undermine the U. S. Constitution. Brilliant!

Illinois Entrepreneur
3 months ago
Reply to  James

There is a real federalism issue here. Will SCOTUS give itself the power to tell a freely elected state legislature to raise taxes?

It will be interesting to see how this sorts out. As it is, there isn’t even a law yet that allows for this. In this highly partisan age, can Congress and the President even come to terms for how a state bankruptcy will be resolved?

If not, the state will have to learn how to function as a declining entity, hand-to-mouth for a long time. The state will have to try to resolve this by itself.

debtsor
3 months ago

I’ll reply to you, IE, instead of James. But you’re absolutely right – there is a federalism issue here. What if the will of the people voting today don’t want to raise taxes, but instead, want to cut pensions? Will the SCOTUS give themselves power to raise IL’s taxes when the legislature won’t? They can’t do that! or can they? What if IL already raised taxes to the point that revenue starts to decrease, and then the feds have to rule on the issue. When facing declining revenue, declining population, a shrinking economy, and so on, the SCOTUS will just… Read more »

James
3 months ago
Reply to  debtsor

Well, then, just how sacrosanct is anything in the IL Constitution? One generation or one era has one set of high-impact problems and followed by another with another, perhaps entirely different set of problems. All of those who believe in the strict interpretation of the constitution surely won’t be happy with your more cavalier take on it. Its supposed to be a set of guideposts essentially for eternity except as officially amended by popular vote, and don’t forget the Pension Clause was part of that 1970 popular vote. Again, that clause isn’t so much the heart of the issue as… Read more »

debtsor
3 months ago
Reply to  James

“Again, that clause isn’t so much the heart of the issue as much as the disregard of it by people in political office who decide how to spend the public’s state taxes.” That’s the same people. They are one in the same. But I don’t care about my cavalier attitude, and neither does math. Math always wins. The state will burn to the ground because of that pension clause. But greedy pilferer pensioners like yourself don’t care as long as you get yours. Greed has no bounds. Even if it means screwing over everyone else, including your grandchildren. But your… Read more »

James
3 months ago
Reply to  debtsor

I hate greedy business people! Are you one of them, screwing over the public with every invoice? Only your customers or prior customers know. Just don’t put yourself on such a pedestal. Its human nature to try to improve your lot in life, and you’ll find “greed’—if that’s how you want to reframe my take on it–in literally every walk of life. The pensioners are not the problem; its the ones who make the rules for it and (fail) to allocate money based on those same rules. Without effectively doing something there in terms of influencing those people to your… Read more »

Illinois Entrepreneur
3 months ago
Reply to  James

James, you’ve touched on the point. With businesses (and business owners) you have a choice and very often many choices. When you sense a bad deal, you can simply choose another service provider or product. Thus, the competition tames the forces of “greed” so that you get a fair deal. The spread of “excess rent seeking” and very good value is small because of these forces. That’s why markets and competition works. Our point about pensions is that these “taming” forces do not exist in the public sector. In fact, they are exacerbated in a conflict-of-interest riddled system of very… Read more »

James
3 months ago

I greatly appreciate your very polite reply as well as the soundness of your reasoning. Surprisingly I agree with most of it! But, to me the bottom line for all of us is that the entire political process at all levels invites corruption through money and the offer of troops to get a particular candidate or party to support your favored cause. I don’t like that, you don’t like it and that needs changing. The problem, though, is that only politicians are finally in control of making it happen. In IL, for example, we continually see that Michael Madigan simply… Read more »

JimBob
3 months ago
Reply to  James

Much that you term “sacrosanct “was initiated in a self-interested manner by people with clout and inside knowledge. The “impairment of contract” clause was part of a deal that would protect those who’d bought up discounted bonds issued by the 13 colonies to finance the American Revolution. Those bonds were issued at par but the “investors” were bought out for cents on the dollar when it looked like the Revolution wouldn’t succeed. Many of the colonies were going to default on paying off the bonds but there was a North-South deal (led, I think, by Hamilton and Jefferson) that the… Read more »

Ben
3 months ago

Truth, you are a worthless waste of time. Taxes can only go so high in a state already ranked the highest overall in tax burden and bleeding residents. They can’t and won’t go much higher. You most certainly are a pensioner, most likely that idiot RNUG from Cap Fax. Enjoy your pension default. I am done talking to a self absorbed liar. Reality and math WILL win.

Ben
3 months ago
Reply to  Ben

Default and then pension cut that is. 🙂

The Truth Hurts
3 months ago
Reply to  Ben

Wow. So much hatred Ben. So anybody that doesn’t agree with you is an idiot? Apparently you are having problems on other comment boards. Make sure you come back here after taxes go up again and tell me how they can’t go higher. Too funny.

Ben
3 months ago

I said they couldn’t go up much higher, and they most certainly can’t you greedy pensioner. Apparently you can’t read. Again, enjoy your pension getting cut. I will be leaving a very happy comment on here when it does get slashed!!!!

Yoz
3 months ago

Is there some reason why you haven’t read the whole dissent? There is a distinction between contractual obligations and contractual remedies that your cherry-picking of quotes fails to acknowledge: “The Court finally claims that its course finds support in cases where we’ve approved retroactive legislation. Ante, at 10–12. Those cases, though, involved statutes altering contractual remedies. Home Building & Loan Assn. v. Blaisdell, 290 U. S. 398, 434, and n. 13 (1934) (noting that each of the 19th century cases relied on by the Court today affected only “remedial processes”). And Minnesota’s law changes the key contractual obligation—who gets the… Read more »

Ben
3 months ago
Reply to  Yoz

Truth is a pensioner from Cap Fax who lies and says he doesn’t get a pension. He also thinks taxes, in an already high tax state that more and more people leave every year, can be raised forever and as high as they want. In reality, they will raise taxes a bit, which is all they can do in an already high tax state, and then state bankruptcy allowance will be all that is left. Truth is a liar, a self absorbed, greedy fool, his pension will be cut, and he can expect a happy, joyful comment from me when… Read more »

debtsor
3 months ago

Insolvency is defined as the inability to pay your obligations as they come due.

That sounds like IL!

ConcernedExpat
3 months ago

This is a watershed moment for IL. The state is the “Greece” of United States.

By limiting their options to fund their deficits, the walls are beginning to cave in…

Mike in Madison
3 months ago

“Certify that it is not insolvent”. IL IS INSOLVENT !!!!!!!!

Admin
3 months ago

We can only hope that Pritzker must personally certify that the state is solvent.

Rick
3 months ago
Reply to  Mark Glennon

If he or the accounting practices certify it is solvent is that final? Who has the authority to challenge that conclusion or audit the math or even say if the accounting principles were valid. If a certification is challenged and proven false is there any repercussions for the accountants and Pritzker? Seems to me all “accounting” in Illinois is these days always based on fortune telling and projecting and not on tangibles. If that’s the case there is no objective accounting standard at all, so basically he can certify a ham sandwich, his certification using such accounting is meaningless.

DantheMan
3 months ago

Illinois dems are following/allowing a scorched earth policy. Anything of value, including future revenue streams, are being destroyed, stolen, or simply sold off in a way that protects the asset from the bankruptcy courts. There will be no bankruptcy until this policy comes to it’s natural conclusion, or in other words, little of value remains. Once the bankruptcy actually occurs, assuming it’s legal/allowed, the courts will have no choice but to stick it to whatever groups failed to protect themselves.

Mick the Tick
3 months ago

What difference does the actual interest rate matter to Illinois leaders? They don’t plan to pay it back.

Rick
3 months ago

It’s time to class action sue Moodys, Fitch and S&P for collusion, fraudulent rating, conflict of interest. Notice We are still conveniently “just above junk” just where a vulturous market wants us, because they get high yields and the “taxpayer last” protections that the raters colluded to “arrange” for them. If Moodys and the rest don’t move Illinois well into junk this time, you know damn well there is something fishy going on. Moodys needs to be the next Arthur Anderson.

#RecallPritzger
3 months ago

Of course he did… With credit analysis examining our ability to service our debt in the face of what will be an increasing exodus of solvent tax PAYERS, and with a FED bailout still indeterminate, it would be a violation of one’s fiduciary obligations to buy what would be (in the truest sense of the word) JUNK debt… One can only hope our fellow citizens are able to say NO to a bailout of our butts without the requisite house cleaning of Springfield. Just call it an affirmative covenant.

Douglas
3 months ago

I just seen openthebooks founder on wgn last night. I went in, typed city of oak forest and seen the salaries and pensions of current and retired city employees. The amount of regular city employees making over 100k is astounding–just ASTOUNDING! This is the culture of Illinois, and why it’s doomed for eventual failure.

Illinois Entrepreneur
3 months ago

I would love to get the name of the lawyer who signs the legal opinion that the “state is not insolvent.” They are willing to take an enormous risk with the federal government at great potential personal risk.

That’s the kind of guy you want representing you if you’re going to get some “stuff” done. A Saul Goodman sort of fella.

Doug
3 months ago

How in the hell could Illinois and Chicago prove they are Not Insolvent and still receive the Fed $?

don
3 months ago
Reply to  Doug

If all the conservatives left Illinois, the dems would rather see that then stay and pay taxs.The horrid right wing people need to leave. We know Chicago is a foul God hating baby killing city that died years ago.You will eventuality see sewer and garbage in the streets in chicago. ,Just like in LA. THAT IS WHAT YOU WILL GET FOR VOTING DEM.They will poop in between every parked car down town.Sound far out there . Go look on u-tube at the home less in down town LA.The dems love it.a lot of dem votes on election day..It is coming… Read more »

debtsor
3 months ago
Reply to  don

You are right. Dems would rather control a smouldering pile of rubble than enjoy prosperity and share power with Republicans. There’s a reason the world has so many failed one party controlled nations, starting with Mexico to our south, with its PRI that ruled Mexico for a century, and now exports its cartels’ drugs and violence around the new world and beyond.